If you're kicking yourself for missing out on Apple ( AAPL) right now, you're not alone. iPhone mania (should we now coin the phrase "i-Mania" for the next Apple product?) has sent the stock soaring to an all-time high. The stock is up a stunning 1,600% since early 2003.

No one thought it would come this far. Even those who got in early, and stayed along for the amazing ride, wish they owned a lot more.

One name on that list will astonish you: Steve Jobs.

Yes, him.

I can reveal that the Apple CEO missed out on more than $4 billion in personal profit on Apple stock, thanks to a decision he made to cut his exposure to the stock four years ago.

Four billion dollars. And change.

Do you think he'd like this one back?

Apple media relations declined to comment.

It was early 2003 when Jobs and the board sat down to consider a problem. He had been hard at work rescuing the company since 1997, but his main compensation had been in the form of a $90 million airplane and a huge chunk of stock options that the tech crash had left worthless.

Most of the options had been granted at much higher prices. By early 2003 Apple stock was down 80% from its peak. The astonishing success of the iPod and iTunes remained mostly in the future, and Wall Street wasn't much interested.

Jobs at the time was holding 15 million options at a strike price of $9.15, which means he could make money only if the shares rose above that level, plus another 40 million options with a strike price of $21.80.

The share price by early 2003: around $7.50.


So Jobs and the board reached an agreement. He would throw away all those apparently worthless options in return for 10 million actual Apple shares. (This information comes from the company's public filings. The prices have been adjusted to reflect Apple's 2-for-1 stock split in 2005.)

At the time, it looked like he was giving up nothing and getting $75 million in return. And, as he had rescued the company from oblivion, who would argue he didn't deserve it?

The company explained at the time that Jobs was not merely motivated by self-interest. "Mr. Jobs felt strongly that this would more effectively build shareholder value," it said in a public filing, "by reducing the company's overhang and by providing additional shares that could later be granted to employees whose contributions are critical to the long-term success of the company."

Indeed. Of course, the same would also have been largely true when Jobs had accepted the options in the first place.

Irony: The period when he made this decision, early 2003, was to prove the post-bubble low point for Apple stock. It was just before it began its monumental run.

How much would Jobs have made if he had held on to those options?

His 10 million shares are now worth $1.2 billion. So he isn't hurting. (And he has made much more on stock in Pixar, which is now part of Disney ( DIS).)

As for those canceled options?

Try $5.6 billion.

Or ... $4.4 billion more than Jobs has made on the shares he took in exchange.

Jobs was not alone. Around the same time, in March 2003, others at the company were allowed to make a similar exchange. Many employees were holding bubble-era options that also seemed worthless because their strike prices were so high. So in March 2003, Apple set up a one-time program to let them swap these options for a smaller number of options at a lower strike price.

Bottom line: The exchange would benefit them so long as the share price stayed low. They would lose out only if it went to the moon.


In total, the company canceled 20 million options (in today's terms). The move will have cost those employees, and saved shareholders, hundreds of millions of dollars.

All of which should offer at least a smidgeon of consolation to those who missed out on Apple stock. Why? Because it shows that four years ago, not even Steve Jobs, or other folks at Apple, dreamed the shares could possibly come this far.

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In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining TheStreet.com in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.

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